• Keep NEUTRAL, with new SGD1.06 TP from SGD1.15, 5% upside. We cut our 2024F–2025F earnings by 7-8% following weak 2H23 results. Although revenue and reported PATMI were in line, recurring PATMI was lower. Longer term growth should be driven by China operations. Lower gestation losses from China and some improvement in Singapore operations will likely support 2024 growth. Still, risks from higher-than-estimated operating costs, likely weak foreign patient load, and continuing losses from the insurance business persist. We await clarity on sequential earnings improvement in the coming quarters.

• In-line reported numbers for 2023. Revenue of SGD706.9m (-14% YoY) was in line with our estimate. Reported PATMI of SGD90.2m (-42% YoY) also met our estimate while recurring PATMI of SGD74.5m (-46% YoY) missed. The hospital services division saw a sharp improvement in PBT for the 2023 and 2H23 periods amidst improved patient load in Singapore and the ramping up of operations in China, leading to YoY lower gestational losses. Raffles Medical continues to focus on growing and consolidating its three hospitals in China. Revenue for the China region grew 18% YoY to SGD59.3m from SGD50.2m in 2022. Healthcare services continued to see a decline in PBT due to a lack of revenue from COVID-19 activities. Maintaining a 50% payout ratio, the group announced a final ordinary DPS of 2.4 SG cents.

• Growth outlook filled with risks. RMFD has added 176 more beds dedicated to the transitional care facilities (TCF) programme. This should help improve the scale of its operations, while improved profit and (hopefully) margin should be visible in its healthcare services business in 2024. We continue to expect wage pressure to persist – the group plans to add more specialists, family physicians, nurses, and allied health professionals as it looks to grow its operations. We also expect the losses in its insurance business to taper off gradually as elevated insurance claims could persist for a few quarters. The weak foreign patient load, probably due to a relatively strong SGD and competition from regional healthcare players, may not return to pre- pandemic levels and could remain weak in the near term.

• Unchanged valuation basis; new 0% ESG premium/discount. We continue to value RFMD based on an average value derived from the use of P/E, P/BV, EV/EBITDA, and DCF valuation methods. The reduction in our TP is reflective of our lower earnings estimates and the new 0% ESG premium/discount. RFMD’s ESG score of 3.1 is now in line with the country's median ESG score (earlier 3.0). Therefore, we have removed the 2% valuation premium that was earlier ascribed to our fair value for RFMD.

Source: RHB Research - 27 Feb 2024